Ask most business owners what duties their co-owners owe them and you will hear some version of loyalty. Do not compete with the company. Do not take its opportunities. Do not use inside information against your partners. In many states that intuition is roughly right because the law supplies those duties whether or not anyone wrote them down. In Nevada, the intuition is wrong. The protection may never have been there from the beginning.
Nevada Revised Statutes section 86.298 states the rule plainly. The duties of a manager or managing member of a Nevada limited liability company are the implied contractual covenant of good faith and fair dealing, plus such other duties such as fiduciary duties prescribed by the articles of organization or the operating agreement. Read that list again for what is missing. There is no default duty of loyalty. There is no default duty of care. If your operating agreement does not create them, they do not exist.
Creatures of contract
The provision reflects a deliberate legislative choice. Nevada treats LLCs as creatures of contract and gives the parties wide latitude to design the entity they want. Section 86.286 permits an operating agreement to expand, restrict, or eliminate duties as best suits the business. The 2019 amendment adding section 86.298 did not narrow that flexibility; it clarified where the baseline sits when the drafters say nothing.
Nor is the rule confined to companies formed after 2019. In an unpublished decision involving an LLC formed before the amendment, the Nevada Supreme Court read the 2019 addition as a clarification — meaning Nevada LLCs did not carry default fiduciary duties beforehand either. Israyelyan v. Chavez, 466 P.3d 939 (Nev. 2020). Members of older Nevada LLCs should not assume the law was different when their company was formed.
The contrast with Delaware is worth understanding because so many transactions are papered on Delaware assumptions. Delaware also permits sweeping waivers of fiduciary duties in an LLC agreement but its default rule runs the other way: absent contractual modification, traditional fiduciary duties apply. Nevada starts from silence. In Delaware, you draft to eliminate duties. In Nevada, you draft to create them.
What survives in both places is the implied contractual covenant of good faith and fair dealing. That covenant cannot be eliminated, and it is not nothing — it prevents arbitrary or unfair conduct that works to the disadvantage of the other party, and Nevada recognizes that a plaintiff can recover for its breach even where no express term was violated. But it is a contract doctrine, not a fiduciary one. It polices how a party exercises the rights the agreement gave it. It does not impose an affirmative obligation to act in a co-owner’s best interests. That obligation is a fiduciary duty — and in Nevada, you have to buy it.
So What?
Write the duties into the operating agreement. If you want members or managers bound to duties of loyalty and care, say so expressly. This is the entire ballgame. A Nevada operating agreement that is silent on duties is not neutral; it is a waiver by default.
Address competition and corporate opportunity by name. Do not rely on an implied duty of loyalty to stop a member from launching a competing venture or taking a deal that belonged to the company. Include an express non-compete or non-diversion covenant, an opportunity provision defining what must be presented to the company first, and confidentiality terms specifying what a member may do with what they learn. Silence permits a great deal.
Understand what the implied covenant can and cannot carry. It is a real protection against a party using contractual discretion arbitrarily or in bad faith. It is not a substitute for fiduciary duty, and it will not supply obligations the agreement never contained.
Do not port Delaware assumptions into a Nevada entity. Counsel and clients accustomed to Delaware defaults are the most likely to be surprised. Check the state of formation before assuming what is owed, and read the operating agreement rather than the intuition.
Consider the business judgment rule question. A Nevada district court sitting in the Eighth Judicial District’s business docket has held that the business judgment rule presumption applies to Nevada LLCs whose operating agreements specify fiduciary duties, while emphasizing that exculpation provisions are strictly construed. If you are drafting duties in, think about the standard of review and the exculpation and indemnification terms at the same time.
Diligence the agreement before you invest. If you are taking a minority position in a Nevada LLC, the operating agreement is not paperwork — it is the sole source of nearly everything the majority owes you. Read it as if it were the statute, because functionally it is.
Nevada’s approach is not a trap so much as a philosophy: the parties know their business better than the legislature does, so the parties should write the rules. That philosophy rewards people who actually write them. For everyone else, the default is that the loyalty you assumed you were owed was never part of the deal.
David Seidman is the principal and founder of Seidman Law Group, LLC. He serves as outside general counsel for companies, which requires him to consider a diverse range of corporate, dispute resolution and avoidance, contract drafting and negotiation, real estate, and other issues. He can be reached at david@seidmanlawgroup.com or 312-399-7390.
This blog post is not legal advice. Please consult an experienced attorney to assist with your legal issues.
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